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Need to predict the competitive behavior in the pharmaceutical market

Pharmaceutical companies, in general, tend to neglect the role of competition in strategic analysis, in spite of being in markets where competition plays a significant role, as, usually, two or three players have 80%-90% combined market share per therapeutic category.

To be fair, pharmaceutical companies are not alone in this, according to a McKinsey survey[1], 77% of companies learned of an innovation too late to introduce countermeasures to diminish the competitor’s success. In the case of pricing moves, the figure was even worse at 88%.

Reasons for this low success figure seem to be lack of a:

  • Competitive intelligence system that gathers information on competitors and other stakeholders
  • Knowledge of frameworks that can serve to predict the competitors moves

The pharmaceutical market is highly regulated and companies have plenty of resources to monitor competitors’ and other stakeholders’ activities, such as market and prescription audits, published product pipelines and clinical trials to just name a few. Thus, this possible reason is an item that can be solved by determining the company’s intelligence needs and hard work in collection and analysis. Therefore, we are not going to spend time on this and we will focus first on why and how (in subsequent articles) can we predict the competitors’ behavior.

Why and how can we predict competitor behavior?

We believe this can be best explained by watching the video below.  It is an extract from the Argentinean movie “the secret in their eyes”.

In this movie, the justice (the two main characters on this scene work for the justice) was having trouble locating the main suspect, who always vanished before they could get to him and there was no way they could find out how to get him. In this scene, the actor masterfully explains why and how we all can be predicted to some extent.

Knowing that the main suspect had “passion” for Racing Club, a soccer club, they could eventually find him at a match.

To be fair, predicting what a specific competitor will do with 100% accuracy is impossible, as the possibilities are too many. What we must always aim to do, however, is to reduce the uncertainty cone, determining of all the possible moves the competitor can do, which ones are the most likely ones that they will do, as can be seeing in the following diagram:

In a series of articles we will show some frameworks that reveal different passions or to portray this better, constrains that all companies have that limit their competitive behavior and, thus, allow us to reduce the uncertainty cone on what they will do.

However, first, we must understand the competitive process.

Competitive process and competitive interactions:

We are not alone in the market (otherwise there is not much need to predict competitor behavior, unless, of course, it is on potential entrants).

The competition process is composed of competitive interactions or moves, like Newton’s third law of physics, for every competitive action (either ours or the competitors’) there is a reaction. This process can be better understood on the following diagram:

Then, for each competitive move there will be a:

  • Physician-patient reaction, which, generally, triggers a competitor reaction
  • Competitor reaction on the move
  • An assessment of the move’s effectiveness based on the physician-patient and competitor reactions that, in turn, triggers a new cycle

This process is very basic and obvious. In spite of this, the vast majority of marketing plans we see, lack a section on how competitors are going to react to the move/plan and what the company will do to counter it. The underlying assumption is that the competitor is naïve and will not react at all, letting us take, let’s say, 10% market share from him/her, which, needless to say, will not happen in real life, as no company allows a competitor to steal 10% market share without fighting first.

In the courses we teach, when we make our students play a war game exercise called “the erectile dysfunction battle”, we ask them to write down their market share goal. Invariably, the teams have goals that summed up represent more than 100% market share. Thus, the first lesson in the war game is learned, someone is not going to achieve his/her goals.

We bet that if we had access to the marketing plans of each competitor in a given therapeutic category and sum their market share goals, we will see a similar situation, adding well in excess of 100%.

There are several frameworks to determine how competitors could react to the company’s moves. We will be covering some of them in future articles, as we believe that we have established the need for predicting competitors’ behavior.

[1] How companies respond to competitors, a McKinsey Global Survey done with 1,825 executives

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